Economists and policy makers refer to carbon tax as an efficient instrument to
control CO2 emissions, but concerns about possible negative effects of its implementation,
as for instance the loss of competitiveness on the international market,
have been expressed.
In the present chapter the IO model is used to estimate the short-term effects of
a carbon tax in Italy (the results can be easily extended to the case of a permission
trading scheme), which include the percentage increase in prices and the increase in
the imports of commodities to substitute domestically produced ones as intermediate
input. The present study is not ¿behavioral¿, in the sense that the change in the
consumers¿ behavior and choice, induced by higher prices, is not taken into account.
The results of the study show that a carbon tax of 20 d/t CO2 in Italy would
produce a modest increase in prices and a small reduction in the emitted CO2
determined by the substitution of domestically produced intermediate inputs with
imported ones. Moreover, due to the assumption underlying the applied model, the
results have to be considered as an upper bound estimation or pessimistic forecast as
well as restricted to a short-run time horizon, which means before any technological
adjustments are possible.